ANALYST VIEW: Chinalco agrees $19.5 billion deal with Rio Tinto

SYDNEY (Reuters) - Indebted global miner Rio Tinto agrees to sell $12.3 billion in asset stakes to China's top aluminum maker, Chinalco, and sell $7.2 billion in convertible notes to state-owned Chinalco.

COMMENTARY

PETER O'CONNOR, HEAD OF METALS & MINING AUSTRALIA, DEUTSCHE BANK

"I don't think it is a perfect deal but the equity issue with a convertible note is far less dilutive than a deeply discounted rights issue to existing shareholders.

"You have to ask whether the status quo is any better than what's being offered and you would have to argue, without seeing the detail, the outcome that's being delivered will be much better than the status quo by a mile.

"How ever you cut it, it's going to be earnings dilutive in the short-term but you can't grow a company without cash. There's no point in having great assets if you can't grow them."

WARREN STAUDE, INVESTOR ADVISER, TAURUS FUNDS MANAGEMENT

"They think they can sell less than a controlling interest in their assets and still control them. They think they will still rule the roost and have money in the tin but that seems crazy.

"The Chinese have a long-term plan that differs from old mining houses so there's a question about influence and control.

"One of the bigger fund managers I know thinks what they need to do is a big rights issue. I think that would have be a lot more acceptable and people would have put money in if it was done at the right price.

"With Chinalco, they won't be able to reverse it, but with a rights issue you can always buy shares back at a later stage.

"The difficulty I'm sure the board faced was if you did a deeply discounted rights issue, you could have squashed the share price to the point where BHP Billiton could come out and do a (share-based bid at) 1-for-1 instead of a 3 and a bit.

"Still I think the rights issue was the better way to go but that's subject to all sorts of debate."

KEN WEST, PARTNER WITH PERENNIAL GROWTH.

"I can understand that there may be part of the shareholder base that will resist this because of the implications for the long-term growth optionality for the group and implications for the group's long-term value.

"We've been expecting the more conventional flagged, tagged asset divestments, and now we're getting a smorgasbord across the highest quality assets. It's perplexing."

ALAN KOHLER, ECONOMIC COMMENTATOR, BUSINESS SPECTATOR

"Rio is permanently giving up its independence and changing the face of the global commodities trade to fix a short-term cash shortage that it brought upon itself.

"True, it's a big cash shortage: there is $14 billion of bank debt due this year and another $15 billion due next year. But there is not much doubt institutional investors would have given the company that money -- and still would.

"The deal between Rio and Chinalco is far from a fait accompli. It requires approval from both Rio's shareholders and the federal government."

OPPOSITION LAWMAKER WILSON TUCKEY (his electorate includes a lot of Rio's Australian mines)

"I'm not really concerned who pays Australian worker wages, But there is a broader issue on the extent to which, in the depressed climate and with a depressed (Australian) dollar, we start selling off major operating assets of this nature.

"It is always a problem in the national interest, with these companies if they are selling to themselves.

"You are confronted with future development problems, which was the question raised when (Royal Dutch) Shell wanted to take over Woodside Petroleum -- what priority were they going to give to future development within Australia? I think that is a serious matter."

"They are never going to on-sell the product to the next stage in development if it is their national interest to sell it for less. It is removing competition from the marketplace."

WARREN EDNEY, ANALYST, ABN AMRO

"This approach is a bit of a worry. They seem to have favored one shareholder over all the others at this point in time.

"It's interesting they've gone down this route. They're selling assets at a significant discount to BHP's original offer, which they thought completely undervalued the asset base."

BACKGROUND

- Rio Tinto needs to raise money to repay a mountain of debt used to fund its $38 billion acquisition of Canadian aluminum group Alcan in late 2007 when commodity markets still appeared immune from the worsening global financial crisis.

- Rio Tinto's overall debt is close to $39 billion. Since the Alcan acquisition, aluminum prices have since fallen by more than 60 percent.

- In December, it unveiled plans to cut 14,000 jobs, or 13 percent of its workforce, and slash capital spending this year by more than half to $4 billion from a previously forecast $9 billion. It also canceled plans to boost its dividend this year.

- Rio Tinto's problems were exacerbated in November when larger rival BHP Billiton scrapped a $66 billion takeover bid for the company.